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Lagdir Nauji Vs. Surendra Mohun Nag and anr. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtKolkata
Decided On
Reported inAIR1938Cal606
AppellantLagdir Nauji
RespondentSurendra Mohun Nag and anr.
Cases ReferredTailby v. Official Receiver
Excerpt:
- .....could not have larger rights in the matter; he has contended in the second place that there was an equitable charge created in favour of the plaintiff by the indenture of agreement in respect of the money due on the bill and the plaintiff had also a statutory lien on the fund under section 171, contract act. under the circumstances the attachment could not override the charge but must be taken as subject to the same. as a general proposition of law, it cannot be disputed that in a garnishee proceeding the attaching creditor stands in the shoes of the judgment-debtor : vide halsbury, edn. 2, vol. 14, p. 106. no attachment could be made, when there is no existing debt due by the garnishee to the judgment-debtor, and if the judgment-debtor has already parted with his interest in the debt by.....
Judgment:

B.K. Mukherjea, J.

1. This is an appeal on behalf of the plaintiff, and it arises out of a suit commenced by him under Order 21, Rule 63, Civil P.C. for establishment of his title to a sum of money amounting to Rs. 925, which was attached before judgments by defendant 1 in a money suit brought by him against defendant 2. The facts so far as they are material for our present purposes may be shortly stated as follows : On 10th October 1933, Defendant 2 who is the proprietor of a firm carrying on business under the name and style of the Assam Produce and Timber Coentered into a contract with A. B. Railway Co. agreeing to supply 10,000 metre gauge sleepers and 125 tons of jungle wood logs within certain specified times. Defendant 2 had no funds of his own to carry on the timber supply business. He approached the plaintiff who is a rich man and a banker and the latter agreed to advance money to defendant 2 on certain terms and conditions which were embodied in an indenture of agreement which has been marked Ex. 3 in the suit. This document inter alia provided that the plaintiff (financier) would advance money to defendant 2 from time to time for the purpose of enabling the latter to carry out his contracts with the A. B. Railway Co. and these sums would carry interest at the rate of 6 per cent per annum. It was stipulated in para. 2 of the indenture that all bills made out by defendant 2 against the Railway Company would be forthwith made over to the plain-tiff who would have the exclusive right to collect the moneys due on the bills under an irrevocable power of attorney to be executed by defendant 2 in his favour. The amounts thus realized would be appropriated by the plaintiff in the first place towards repayment of the advances made by him with interest and the balance would be divided between the plaintiff and defendant 2 in the manner set out in para. 3. According to the plaintiff, he did advance money to defendant 2 on several occasions in pursuance of the agreement, and the advances aggregated to more than Rs. 8000. Defendant 2 executed an irrevocable power of attorney in plaintiff's favour in December 1933 authorizing the plaintiff to make all collections on his behalf and endorse and negotiate all his bills including the railway bills.

2. The first bill which was made out by defendant 2 against the railway company for works done as contractor was A. E's Bill No. V/l dated 16th May 1934 and it was for a sum of Rs. 2625. This was handed over by defendant 2 to the plaintiff and the plaintiff presented it in due course to the A. B. Railway Company. In the meantime, defendant 1 who was a creditor of defendant 2 in respect of money due on a hand note instituted a suit for recovery of the same in the Court of the First Munsif at Sylhet and got an attachment before judgment in respect of a sum of Rs. 925 out of this bill which was lying with the. railway company at that time. The plaintiff put forward a claim under Order 21, Rule 58, Civil P.C. but it was rejected as being, filed too late, and thereupon the present suit under Order 21, Rule 63, Civil P.C. was instituted. The plaintiff avers that the money attached by defendant 1 really belongs to the plaintiff and not to defendant 2 and consequently it could not be attached by defendant 1 in the money suit which ho brought against defendant 2. The suit was contested by defendant 1 alone. His contention in substance was that the attachment was quite valid and proper as the money belonged to defendant 2 and not to the plaintiff. It was further said that the deed of agreement set up by the plaintiff was a collusive and benami affair, which was resorted to for the purpose of defrauding the creditors of defendant 2 and that the document was inadmissible in evidence for want of registration and proper stamps. The Munsif who tried the suit, found the indenture of agreement to be a valid and operative document, but he held that the plaintiff could not succeed in the suit as the money really belonged to defendant 2 and the plaintiff was only constituted an agent for the purpose of collecting the bills on his behalf. The title to the money, according to the Munsif, remained with defendant 2 until it was actually appropriated by the plaintiff in accordance with the terms of the agreement and consequently the attachment was held to be proper. This decision was upheld in appeal by the lower Appellate Court.

3. Mr. Sen who appears before me in sup-port of this second appeal, has argued in the first place, that the position of the attaching creditor is the same as that of the judgment-debtor in a garnishee proceeding, and as defendant 2 by virtue of the indenture of agreement and the irrevocable power of attorney that he executed in favour of the plaintiff had put it beyond his powers to realize the money from the railway company, defendant 1 could not have larger rights in the matter; He has contended in the second place that there was an equitable charge created in favour of the plaintiff by the indenture of agreement in respect of the money due on the bill and the plaintiff had also a statutory lien on the fund under Section 171, Contract Act. Under the circumstances the attachment could not override the charge but must be taken as subject to the same. As a general proposition of law, it cannot be disputed that in a garnishee proceeding the attaching creditor stands in the shoes of the judgment-debtor : vide Halsbury, Edn. 2, Vol. 14, p. 106. No attachment could be made, when there is no existing debt due by the garnishee to the judgment-debtor, and if the judgment-debtor has already parted with his interest in the debt by assignment or created an equitable charge in respect of the same in favour of another' person, the attaching creditor acquires no larger rights than his debtor. But when the judgment-debtor still remains the owner of the money due by the garnishee, the mere fact that he has entered into a contract with another person that the fund shall be applied in any particular way does not prevent the creditor from attaching the fund. As Lord Wrenbury observed in Palmer v. Carey (1926) AC 703:

An agreement for valuable consideration that a fund shall be applied in a particular way may found an injunction to restrain its application in any other way. But if there be nothing more, such a stipulation will not amount to an equitable assignment. It is necessary to find further that an obligation has been imposed in favour of the creditor to pay the debt out of the fund.

4. In In Re: General Horticultural Co.; Ex parte Whitehouse (1886) 32 Ch D 512 and Glegg v. Bromley (1912) 3 KB 474 which are relied upon by Mr. Sen, it was found as a fact that there was an equitable assignment of the debt due by the garnishee before the attaching creditor proceeded to attach it. It was held therefore, and quite rightly, that if as between the judgment-debtor and the assignee the former could not have questioned his right to the debt, the attaching creditor could not assert anything, which the judgment-debtor in law could not assert. The question therefore narrows down to this, as to whether by virtue of the indenture of agreement executed between the plaintiff and defendant 2 the former acquired an interest in the bills by way of an equitable assignment or charge. The law as to equitable assignment was stated by Lord Truro in Rodick v. Gandell (1850) 1 Deg M and G 763 in the following manner:

The extent of the principle to be deduced is that an agreement between a debtor and a creditor, that the debt owing shall be paid out of a specific fund coming to the debtor, or an order given by a debtor to his creditor upon a person owing money or holding funds belonging to the giver of the order directing such person to pay such funds to the creditor, will create a valid equitable charge upon the fund, in other words will operate as an equitable assignment of the debts or fund to which the order refers.

5. This enunciation of law has never been dissented from, and the passage has been reiterated in more cases than one and in this Court by Sir George Rankin Probodh Chandra v. Road Oils (India) Ltd. : AIR1930Cal782 . The test really is whether there was an intention to assign or create a charge, which will give the assignee an equitable interest in the fund itself. On a careful reading of the indenture of agreement in this case, I have come to the conclusion that there was an intention to create a charge in favour of the plaintiff in respect of the money due on the railway bills. Defendant 2 undertakes in the first place to hand over all bills as soon as they are made out, to the plaintiff and it is expressly said that he would have nothing further to do in the matter of realization of the money. The plaintiff is to collect the money not merely as an agent of defendant 2 but the collection is for his own benefit, and he is given an interest in the fund to the extent of the advances made by him. It is only after his dues are satisfied that the balance becomes available for further division in accordance with the terms of the document. I cannot agree with the view taken by the Courts below that the plaintiff has no beneficial interest in the money till it is actually collected and distributed.

6. Mr. Das has argued that no charge could be created over debts which had not accrued at the time that the contract was entered into. This contention is manifestly untenable. The property was in existence at the date of attachment, and an assignment by way of charge on future property is a perfectly valid assignment in equity, which will attach to the property, when it comes into existence: Tailby v. Official Receiver (1888) 13 AC 523. I hold therefore that the plaintiff has an equitable charge on the bill attached, in respect of the advance made by him, and the attachment must be taken to be subject to the charge. It is not necessary to consider the other argument of Mr. Sen that the plaintiff had a statutory lien under Section 171, Contract Act. It is extremely doubtful whether the plaintiff was really a banker within the meaning of the Section. Assuming that he was, it does not give him any advantage in the present case. A banker's lien, like all other possessory liens is an imperfect kind of security which gives the lien holder a bare right of detention, and does not create any legal or equitable interest in the property detained. Moreover the question might arise as to whether the lien did not cease the moment he parted with the possession of the bill. The result is that this appeal is allowed. The judgment and decree of the Courts below are set aside, and it is declared hereby that the attachment of the Railway Bill No. A.E. V/1, dated 16th May 1934 in Money Suit No. 1060 of 1934 of the Court of the First Sadar Munsif at Sylhet by defendant 1 will be subject to the equitable charge that the plaintiff has upon it under the indenture of agreement dated 5th December 1933. The plaintiff will have the costs of the trial Court against defendant 1. There will be no order of costs either in this Court or in the Court of Appeal below. Leave to appeal under Clause (15), Letters Patent is prayed for and refused.


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